A Well-Ordered Estate: Organizing Your Assets and Paperwork Prior to Estate Planning or Death

By Maria Victoria Rotor-Hilado

To those who are cursed or gifted with the burden of wealth, two things are as unchanging as the seasons. First, one is born with death as a sibling. Second, what you own in turn owns you. This book, written by a bar topnotcher and an experienced lawyer in estate planning, will put an end to property problems that afflict those with possessions, great or small. In this sense, the author performs the role of a legal undertaker who makes sure that no one leaves behind property problems together his mortal remains.

• Language: English
• Publisher: Anvil Publishing, Inc.
• Release date: Jul 13, 2018
• ISBN: 9786214201921

Book preview

issued.

Introduction

Beginning a project of estate planning or settling an estate after the death of a relative is similar to preparing a complicated pastry. Not the empanada or doughnut variety, but a delicate pastry requiring considerable preliminary preparation. It may involve several stages of work which may either be concurrent, sequential, or in random order.

For example, to make flaky croissants, the dough has to rest in the refrigerator in between repeated rolling of the butter and foldings of the dough. The painful process (literally painful on one’s arms) is necessary to achieve the perfect flaky, layered, and buttery croissant.

For such a pastry, a pastry chef can only make the croissant when the dough has been rolled out and the butter formed into a square with the right thickness. The croissants may be ruined if the dough is not cooled and rested in the refrigerator, or frozen butter is not partially thawed, so that it may be evenly rolled between the dough.

This is what this book is all about—preparation, and to a certain extent, a bit of problem solving.

It is about organizing your assets and their essential, supporting documentation. It is about making sure that your assets and their paperwork are in the correct state to transfer to your heirs prior to implementing a well-thought-out estate plan.

On the other hand, if death overtakes you or your relative, this book is about preparing the assets and paperwork of the decedent in order that the assets are ready to be transferred to the decedent’s heirs, which may include you, if the decedent is your relative. And if the paperwork is problematic, this book also offers solutions to resolve the problem.

I hasten to emphasize that this book is not about Estate Planning or Estate Settlement. This book also does not discuss the making of a Will. This is because the book is primarily about making an inventory of your assets and the preparation of their supporting paperwork.

Estate planning is defined as the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death.¹

On the other hand, estate settlement is the process by which the properties of the deceased are declared, subjected to estate tax, cleared with the Bureau of Internal Revenue (BIR), and the remainder distributed to the heirs, pursuant to law, and the mutual agreement of the heirs on the partition and distribution of the estate.

Parts of this book may encroach on the subject of estate planning and estate settlement. Such as when I—

•outlined the procedure to settle the estates of long deceased relatives whose names appear on titles of real properties which are in your possession

•made suggestions on how to avoid the freezing of your bank accounts when you die

•discussed imminent legislation which would lift the secrecy of your bank accounts here and abroad

•discussed how donations made to compulsory heirs are valued and pulled back to determine the share of

the heirs

While these discussions are important, they are incidental to preparing your assets and paperwork.

This is a book about the most crucial step of both estate planning and estate settlement—the preparation of your assets and the organization of their supporting paperwork. If this step is not accomplished, it will be difficult to start a project of estate planning.

Alternatively, if you should die without preparing your assets and their documentation, your heirs will be like headless, spastic chickens. They will be scrambling, looking for titles, stock certificates, passbooks, and certificates in every nook and cranny of your house, office, inside your attaché cases, old and new, inside your underwear cabinets, and rummaging through your desks.

And even if your heirs should find titles to properties, they may not know what to do with some of them.

They may find titles of real properties not registered in your name, but instead, registered in the names of your parents, or worse, even in the names of your grandparents, who died decades ago. It is highly likely that these multiple estates were never settled and cleared with the BIR, so the titles to these lands were never transferred to their heirs, and from their heirs, down to you.

Decades may have passed, and now it is too expensive to pay the multiple estate taxes because the compounded penalties and the interest are excessive. Or worse, at the time of the deaths of your ancestors, the estate tax rate might have been at its highest, i.e., 60%, or there may have been two taxes imposed—estate and inheritance tax.

It is possible that multiple estate taxes, penalties, and interest may wipe out the value of these assets. Also, searching for old, dusty, and fungus-laden documents is exceptionally difficult and may even be hazardous for someone who is asthmatic.

Thus, because of the heavy and multiple tax burdens, the difficulty of finding or reconstructing titles and other documents, and settling the successive estates, the properties which are still titled in the names of long dead persons, will likely never be transferred from your ancestors down to their heirs, and from them, down to you, and from you, down to your own heirs.

Even if you or your heirs can make use of these properties, they cannot be leased, sold, or used as collateral. This is because the registered owners, who are already dead, cannot sign the sale, lease, loan, or other legal documents. They cannot appear before a notary public to attest to their actions. Unless the dead rise or the heirs have magical hands, these legal documents can no longer be signed by the deceased registered owners.

Assets which are registered with the Register of Deeds and Stock Transfer Agents have to be included in an Estate Tax Return which is filed with the BIR. If they are not included in the return, they cannot be cleared by the BIR, and if they cannot be cleared, they cannot be transferred to you, and subsequently from you to your heirs.

All these unfortunate consequences could have been avoided if assets and their supporting documents had been put in a condition ready for transfer.

Unfortunately, these assets will remain in limbo unless you prepare the paperwork necessary to fix the problems.

Admittedly, many of the suggestions for organizing and preparing your assets and paperwork are extremely tedious and require a lot of legwork and having to deal with bureaucrats. Indeed, who wants to go back and forth to the Assessor’s Office or to the Register of Deeds, especially when these offices are located in different far-off provinces?

However, these tasks have to be done. There is no choice. It boils down only to a question of whether YOU, who are the most knowledgeable of your own assets and affairs, will do it, or whether you will leave the mess to be sorted out by your heirs, who are possibly the most clueless on the subject of your assets and financial affairs. The third and worst option is that no one will do anything.

If you do the preparations for your children, they will certainly remember you with awe and admiration for your organizational skills and for having saved them all the trouble. They will trumpet your efforts and skills to all and to the generations after them.

On the other hand, if you choose to do nothing, your estate will be in a sorry mess and your name on the lips of your children or heirs will more likely be preceded by unflattering adjectives. Your skills as an organized person will be maligned and perhaps, their loving memories of you may be diminished. It is possible that some of your heirs will badly need the inheritance to survive and your inaction, even laziness, or lack of organization, will be bitterly etched in the minds of your heirs.

If, after reading this book, you are left in a state of shock and lethargy, remember that a big problem is best solved by addressing it a little at a time.

At the very least, you should organize assets which are covered by registries or require BIR clearing, such as real properties, shares of stock, and bank accounts. They are likely your most valuable assets. At the same time, however, they are also the most tiresome to organize.

I have often heard parents say:

"Bahala na ’yung mga anak ko (I leave it all up to my children). I am already giving these properties to them, properties they did not earn. Bahala na silang mag-ayos (It is up to them to fix)!"

My reply to this is: You may not in fact be leaving your children anything if your paperwork is in a sorry mess. Imagine, if you will, a Christmas scene with several poor children looking in at the window of a toy store, wanting the toys but not being able to have it. It will be like this when your assets cannot be transferred to your heirs.

The organization and preparation of your assets and their accompanying paperwork is a crucial step in the process of transferring your assets to your heirs. It has to be done. And this book will help you do it.

chapter 1

Why You should do

an Inventory of Your Assets

1.1. Why YOU should do an inventory of

your assets

1.You should do an inventory of your assets to know:

•what your assets are

•if the title of the asset is registered in your name, and

•how much or what percent of the asset is owned by you (in cases of co-owned property)

Let me narrate a common story which could very well be your own story:

•You, your wife, and children have lived in your home for decades. Your father lived in the same house since his birth. You were born and grew up in the same house.

•When you got married, you continued to live in the house with your wife, your children, and your parents. You took care of your parents.

•When they were living, both your parents had repeatedly told you that when they die, you would inherit the house. After several years, your mother died and then within one year, your father also died.

•You always understood that the property was 100% yours.

•While going through the papers of your father after his death, you found the title to the land where your house is built.

•You discovered that the land is in the name of your great-grandparents (on the paternal side), who died more than 100 years ago.

•You found out that the estate tax was not paid upon the death of your great-grandfather. When your great-grandmother died, her estate was not settled and the estate tax was also not paid.

•Your grandfather and his siblings died one by one. No one bothered to settle their respective estates and pay the estate taxes.

•Then your own parents died and you too did not settle their estates or pay any estate taxes on their assets.

•You realized that your home was not transferred and passed down through the generations to your father and from him to you.

•In short, your residence is not yours to call your own.

•You decided to fix the problem and you hired a lawyer to find out what it would take to have the title to the ancestral home transferred to your name.

•After studying the facts, your lawyer informed you that you are not the sole owner of the property. He also told you that you only owned a very small share, together with dozens of relatives. These relatives are all the descendants of your paternal great-grandparents.

•Counting all the descendants, the lawyer told you that you only owned 1/600² of the ancestral home and not the 600/600, which was what you imagined all along.

•Because so many relatives have died, counted from the person whose name appears on the title, you were told that you will have to settle several estates and that—

oestate taxes are based on the tax rate applicable at the time of the deaths of each of your deceased relatives.

For some of your deceased relatives, estate taxes may not be the only tax to be paid, because from July 1, 1939 to December 31, 1972, both estate tax and inheritance tax were imposed.

othe estate tax rates ranged from 10% (starting July 1, 1939-September 14, 1950) up to as high as 60% (January 1, 1973–July 27, 1992)

oa 25% surcharge on the tax due may be assessed because the estate taxes were not paid on time; and

oover and above the surcharge, interest at 20% per year may also be charged

•To complicate matters, you approached your siblings and other relatives to clear up the matter of your ownership of the ancestral home.

•You asked your relatives to recognize your sole ownership of the property by reason of your residence in said house for decades.

•You also told them that your great-grandfather

promised that the property would go to your grandfather, who committed that it would go to your father, who then assured you that it would pass down to you.

•Instead of agreeing to recognize you as the sole owner of the ancestral house, your relatives met and decided to sell the house to the highest bidder.

•Your relatives, who own 599/600 of the property,

decided to sell what is your home at a price you cannot afford to match.

oThe upside is that, as a co-owner of the ancestral home, you will receive 1/600ths of the proceeds.

oThe downside is that now, you will become homeless.

•It is also entirely possible that the estate and inheritance taxes (where applicable), were actually paid by your father and that the property was cleared by the BIR for transfer to you.

•However, your father failed to follow through with the other steps and—

ohe failed to transfer the title with the Registrar of Deeds; and

ohe failed to transfer the tax declaration of the property.

•Now you cannot transfer the title and tax declaration because you—

ohave no proof that the estate taxes were ever paid; and

othe BIR, too, cannot locate the clearance among its piles of paper.

•You may think these stories stretch the imagination. They are not fiction and unfortunately, they illustrate very common situations which are repeated over and over again.

2.Another reason to do an inventory of your assets and existing paperwork is to confirm that you remain the owner of your assets. This is particularly relevant in the case of agricultural land.

•Many landowners are effectively deprived of their agricultural land without having any notice or knowledge of their taking pursuant to the